Good news: Health costs as little as $3 a day. At least, that’s all it took in one recent study for several patients to forgo bad behaviors that put their health at risk.

Each year, more than 40% of premature deaths in the United States result from unhealthy behaviors such as smoking, over-eating or failing to take medications as prescribed. Physicians routinely struggle to get patients to give up their bad habits for the sake of their long-term health, yet 20% of Americans still smoke, and 71% are either overweight or obese.

“We know that people in the short term have a lot of trouble changing their behavior in ways that is in their long-term best interest,” says Kevin Volpp, Wharton professor of medicine and health care management, and a professor at the University of Pennsylvania School of Medicine. “People aren’t very good at making these tradeoffs between immediate gratification and delayed and often intangible benefits, such as good health 10 years from now.”

Kevin Volpp, Wharton professor of medicine and health care management, and a professor at the University of Pennsylvania School of Medicine, discusses various methods being researched to encourage positive behavior modification.

Volpp — with collaborators Mark V. Pauly, Wharton professor of health care management; George Loewenstein, professor of economics and psychology at Carnegie Mellon University; and others — may have found an answer to this problem: cash.

As director of Penn’s Center for Health Incentives, part of the Leonard Davis Institute of Health Economics, Volpp is in perpetual pursuit of carrots that will lure patients away from lethal behaviors. In a series of ongoing studies, Volpp has found evidence that money can motivate some patients to stop smoking, lose weight or keep up with their daily medication.

A smoking-cessation study led by Volpp, “Financial Incentives for Smoking Cessation,” published in the New England Journal of Medicine and conducted among employees at General Electric, found that 9.4% of smokers who were offered $750 in incentives to quit smoking were able to remain smoke free for 18 months, compared with just 3.6% of smokers who tried to quit without financial incentive. Another Volpp-led study, “Financial Incentives for Weight Loss,” published in the Journal of the American Medical Association, found that dieters who could earn money by loosing weight lost more pounds more quickly than those who weren’t offered a monetary reward. And a small preliminary study of patients who regularly forgot to take their medication, titled “A Test of Financial Incentives to Improve Warfarin Adherence,” found that the chance to win an average of $3 per day in a daily lottery pushed many of them to remember to take the daily dose.


“Businesses and insurers should be paying attention [to these findings] and incorporating them into their policies,” said Pauly, who has worked with Volpp to study the effectiveness of monetary incentives for patients. Volpp and Pauly call the innovative approach “P4P4P” — pay for performance for patients.

“The good news is that there’s stuff that actually … causes employees to change their behavior,” Pauly said. For an employer, implementing a successful incentive program has the potential to create healthier, more productive employees. It also reduces health care costs down the road, Pauly explained. “There’s two for the price of one here. It’s a win-win.”

Some employers have tried to implement P4P4P approaches, but they often design programs that miss the mark, according to Volpp. For example, an incentive program that offers employees $250 off their health insurance premium at the end of the year if they go to the gym once a week will probably fall flat. In the first place, a $250 discount off an insurance premium doesn’t feel the same as a $250 check in hand. Second, people tend to focus on the present, so a small pay-off at the end of a calendar year won’t be enough to inspire a couch potato to go to the gym in the dark of winter. “Those types of incentives are very poorly designed,” Volpp said. “How the incentive is actually delivered is really important.”

Volpp’s studies draw heavily on lessons from behavioral economics: First, research shows that small rewards and punishments have greater impact if they occur immediately. Second, people are often motivated by experience of rewards in the past, the prospect of rewards in the future, and the possibility of receiving a large reward. Third, when making decisions, most people try to avoid regret, so they will be motivated to take action if it helps prevent a loss.

The studies on smoking, weight loss and medicine adherence were all designed with these lessons in mind. One similarity among them, for example, is the use of frequent, small rewards to encourage positive behavior.

The study on smoking cessation followed 878 employees of General Electric through an 18-month program to quit smoking. Half of the employees (436 people) were offered $100 to complete a community-based smoking-cessation program in their area, $250 if they had quit smoking at some point within six months after taking the course, and $400 if they remained smoke-free for another six months after that. (Researchers verified that participants had kicked the habit by testing their saliva or urine.) The rest of the employees (442 people) were asked to enroll in a smoking-cessation program, and their progress was tracked in the same period to see if they quit. They were given no financial incentives.

The incentive group outperformed the information-only group at every step. More than one out of every seven participants in the incentive group enrolled in a smoking-cession program, compared with less than one out of 18 in the information-only group; 10.8% of the incentive group finished a smoking cessation program, compared with just 2.5% of the control group. After the first six months, 20.9% of the incentive group reported that they had quit smoking, compared with 11.8% of the control group. After nine to 12 months, the gap between the incentive and control groups had grown, with quit rates of 14.7% and 5% in the incentive and control groups, respectively. The final follow-up at 15 to 18 months found 9.4% of smokers in the incentive group remained smoke-free, while just 3.6% of those in the information-only group had managed to quit.

The results for the incentive group far exceed average quit rates: more than 40% of smokers in the United States try to quit each year, but only 3% make it for more than 12 months. “This study showed that these approaches can be quite effective in employer settings,” said Volpp. “GE has announced plans to implement an approach similar to those for all 152,000 employees next year, which is pretty exciting.”

Despite the groundbreaking results, Volpp isn’t satisfied. Smoking is considered the leading cause of preventable death in the United States, killing roughly 438,000 Americans each year. According to the Centers for Disease Control, each adult smoker costs employers $1,760 in lost productivity and $1,623 in excess medical spending annually. “We still have 85% that didn’t quit,” Volpp said, referring to the study’s 12-month mark. “There’s still a lot of room for improvement.”

Volpp and his colleagues may find some support in legislation signed by President Obama on Monday that gives the U.S. Food and Drug Administration unprecedented control over tobacco products. The new law, for example, includes measures that will prevent tobacco companies from marketing their products to teenagers, lower the amount of nicotine in tobacco products, and define what labels are allowed and where they are placed. 

Trust, but Verify

One of the barriers to offering more frequent, smaller rewards in the smoking study was the cost of verifying that smokers were nicotine-free, Volpp said. “We felt that we couldn’t design a smoking study where we could do frequent tests.” Studies better suited to frequent tests provided evidence that small recurring rewards keep people motivated.

One example is the weight loss study of 57 dieters at the Philadelphia Veterans Affairs Medical Center, which created two types of incentive plans built on small, frequent rewards. The 16-week study divided participants into three groups: one enrolled in a “deposit contract,” another in a lottery, and a third in a weight loss program with no financial rewards.

Participants in the deposit contract were able to contribute between $.01 and $3 each day into an account. In addition to matching the deposit, researchers would add $3 for each day participants called in and reported a weight at or below their goal. Participants would receive a text message daily, telling them how much money they had accumulated. The catch: They would only receive the accumulated amount at the end of each month only if they reached their weight loss goal. So depending upon how much they invested and how much weight they lost, participants in the deposit contract group could accumulate as much as $252 per month, or lose up to $93.

The second incentive group got to play a daily lottery that offered a one in 100 chance of a $100 reward, or a one in five chance of a $10 reward. (Each patient was assigned a two-digit number, such as 27. Every day, the lottery would generate a random number. Participants would win $10 if the first or last digits of their number matched; if both digits matched, the participant would win $100.) Participants would only be eligible to win if they had met their weight loss goal for the day and had called in to report it before the lottery took place. Like the deposit group, participants were given daily text messages that told them how much they had accumulated and would only receive the payoff at the end of the month if they met their weight loss goal.

In addition to small, immediate rewards and the anticipation of a larger payoff, the study also tried to maximize the “threat of regret” as a motivating force. In both incentive groups, participants who failed to lose weight were given daily text messages reminding them how much they could have earned had they met their target. For those in the deposit contract group, forfeited money went to a pool that was distributed equally among successful participants who lost more than 20 pounds after 16 weeks. To top it off, participants in both incentive groups who lost more than 20 pounds by the end of the four-month study got a final bonus of $50.

Both incentive groups outperformed the control group. After 16 weeks, the deposit contract group lost a mean of 14 pounds, the lottery group a mean of 13.1 pounds and the control group a mean of 3.9 pounds. About half of the participants in the incentive groups met the 16-pound weight loss goal by the end of the study, while only 10.5% in the control group did.

A follow-up seven months later, however, showed that participants in all three groups gained much of the weight back, although the incentive groups remained at a lower weight than when they began the study, while the control group did not. “Substantial amounts of weight were regained between the end of the weight loss phase and the follow-up,” Volpp wrote in a paper about the study. “Further testing of longer-term use of these incentives is needed to determine whether longer use would lead to sustained weight loss.”

Volpp said he is excited about a follow up weight loss study that puts specially-equipped scales directly in the workplace, allowing study participants to log verifiable weights daily instead of once a month. The scale will recognize the employee’s ID and will take a photo each time the participant weighs in. “So we can run a daily incentive program with verifiable results, rather than using self-reported weight-loss during the month and relying on in-person weights only at the end of the month,” Volpp said.

The ‘Peanuts’ Effect

Volpp sees promise in the lottery-based programs because they incorporate so many of the insights gained from behavioral economics, including the importance of frequent feedback and incentives and the threat of regret. Lotteries are likely more effective than direct payments if the expected value of the reward is small because most people tend to discount rewards if they are too small — a phenomenon known as the “peanuts” effect — and because most people overestimate their chances of winning big in a lottery.

Two small pilot studies of 20 patients taking the drug Warfarin found that a daily lottery significantly increased the proportion of patients who took their daily medication. But like the weight loss study, the patients returned to their bad habits once the financial incentive was removed.

With every study, Volpp finds new questions to consider about how programs are designed, how much of a financial reward is optimal and how incentive-based programs could be combined with other approaches to improving patient behavior. “The challenging or dissatisfying part is that each study just opens up a new chapter in terms of how we think about defining further progress,” said Volpp. “There are all these questions that come up; for example in the smoking study, what would happen if we gave out $1,000 or $1,500? We really don’t know.”

Pauly pointed out that there are other issues that incentive programs must overcome, such as regulatory and legal barriers, employer reluctance to invest in programs that might not pay off until years later when many workers will be at different companies, and the resistance from employees themselves, who may see such incentive-based programs as overly paternalistic. It will also be tricky for employers to establish incentive-based programs without creating resentment among workers who don’t have any bad health habits to kick.

Despite the stumbling blocks, incentive-based approaches still hold promise, in part because “nothing else has worked,” Pauly said. “You could fill up a basement with failed documents on how to curb health care spending.”

Volpp agreed. As a physician himself, he has been frustrated in his own clinical practice with patients who were unable to follow through in changing their health behaviors, even in situations where they were clearly at high risk of suffering significant impairments in quality of life or life expectancy. “You see the consequences of unhealthy behaviors all the time,” he said. “A lot of the existing approaches just don’t work. It’s clear that we need new approaches to help people.”